Netflix is a high-growth name that is “starting to finally show some chinks,” Blake Bath, CEO of Bay Bridge Capital Management, a tech, media, telecom fund that typically invests in cash-rich companies, told CNBC Thursday.
“We had been shortthe name, we’re not short it today, we still may be,” said Bath. “We think there’s more downside for this stock.”
Content costs for Netflix have tripled over the last six months, he added. “We think they only have one way to go, which is up [in content costs],” Bath said.
“Clearly Netflix has done a lot of things right in its 15-year history," he said. "The major benefit over the last three years has been the cheap content deals that they structured with folks like Starz.”
Since Netflix is “walking away” from the DVD-by-mail business, Bath pointed out that this leaves a “very nice gap for Coinstar's [Redbox]," which it acquired in a 2009 acquisition.
“Coinstar is a great candidate for private equity. We think it could generate $7 to $8 in free cash when they get back to normalized capital spending,” he said. “[It currently trades] at less then four times EBITDA. It's generating over $4 a share in free cash, even with the heavy investments they’ve been making,” Bath said.
Bay Bridge Capital has invested in Intel and Google, but also have a bunch of lesser-trafficked funds such as SeagateTechnology, Coinstar and Accenture.
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